Analyzing Contributors to Default Risk on Mortages for Fannie Mae Mortgage

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This report aims to analyze mortgage securities for Fannie Mae Mortgage, utilizing comprehensive data analysis techniques to uncover trends, patterns, and correlations that offer valuable insights. We will explore various factors influencing default rates, including borrower occupancy status, credit scores, and interest-related variables such as Original Interest Rates, Debt-to-Income ratio, and Original loan-to-value ratio. Additionally, we will utilize an interactive map to examine default rates across different states of the United States.

Figure 1 illustrates the average default rates categorized by borrower occupancy status (Investor, Principal, and Second) for the years 2007 and 2019. Notably, investors consistently exhibited the highest default rates in both years, which can be attributed to their susceptibility to market volatility. Furthermore, the overall default rate was significantly higher in 2007 compared to 2019.

Figure 2 presents the distribution of high and low credit scores among default and non-default groups. In 2007, a higher proportion of low-credit borrowers were observed in the default group, while in 2019, the default group had a greater concentration of high-credit borrowers. This indicates a shifting trend in credit score dynamics between the two periods.

Figure 3 showcases the relationship between original interest rates, debt-to-income ratio (DTI), and default rates. Notably, 2007 experienced higher interest rates and DTI compared to 2019, suggesting potential impacts on default rates. The relationship between these variables varied between the two years, indicating the importance of contextual analysis.

Figure 4 highlights the association between higher Original loan-to-value ratios and increased default risk, consistent across both 2007 and 2019. This suggests that borrowers with lower equity in their properties are more susceptible to default.

Figure 5(hover over to view detailed information) provides an overview of default rates and DTI across different states, revealing higher default rates in western states during 2007, possibly influenced by elevated unemployment rates

In conclusion, the overall default rate, original interest rates, and DTI were much higher in 2007 than in 2019. The situation could explained by the Subprime mortgage crisis(Reference1/Reference2) in 2007. We can also see from Figure 6, the default rate increased steeply in 2007. This year, millions of people lost their jobs, and the economic crisis sped up. The dataset in this report displays that the economy influences the default rates in mortgage markets a lot. The environment led to the interest rates being so high and the people could not afford the debt, leading to higher default rates. The situation is hard for lenders to forecast and evaluate. In 2019, we can see the economy recovered. Therefore, the evaluation for lenders must comprise lots of variables. According to the analysis from this dataset and report, the interest rates influenced by economics are important and the influence is a big cycle. Lenders must have deep insight into current financial status. Next, evaluating the background of borrowers is important as well. Lenders should understand the purpose, credit score, and property status of the borrowers.

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Figure Appendix

Figure 1: Default rates for each Occupancy status

Figure 2: The Relationship between Credit score and Default risk

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Figure 3: The Relationship between DTI,Interest rate,and Default risk

Figure 4: The OLTV distribution of Default risk

Figure 5: The OLTV distribution of Default risk

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## `geom_line()`: Each group consists of only one observation.
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Figure 6: The default rates from 2000 to 2023